10 things I learned from the 2019 YTL Hospitality REIT AGM

Listed in 2005, YTL Hospitality REIT owns a portfolio of prime hotel properties valued at RM4.7 billion. The hospitality assets range from business to luxury hotels which are spread across a range of locations worldwide.

In Malaysia, these include the JW Marriott Hotel Kuala Lumpur, The Majestic Hotel Kuala Lumpur, and The Ritz-Carlton, Kuala Lumpur (Hotel and Suite wings). YTL Hospitality REIT’s international portfolio include Hilton Niseko Village and The Green Leaf Niseko Village in Japan, and the Sydney Harbour, Brisbane and Melbourne Marriott hotels in Australia.

Most REITs have been performing well this year due to cuts in the overnight policy rate (OPR) by the Malaysian central bank, so I attended the AGM to find out more about the REIT.

Here are 10 things I learned from the 2019 YTL REIT AGM:

1. Total revenue declined 2.0% y-o-y to RM490.9 million in the financial year ended 30 June 2019 (FY2019) while net property income (NPI) grew 1.8% to RM253.3 million. By country, Australia contributed 68% of the REIT’s revenue, followed by Malaysia (27%) and Japan (5%). However, Malaysia was the highest contributor to the REIT’s NPI at about 50%, followed by Australia at 42% and Japan at 8%.

2. Revenue contributed by Australian properties declined 7.9% y-o-y to RM331.5 million while NPI fell 10.9% to RM105.3 million in FY2019. This was mainly due to business interruptions following the refurbishment exercise at Brisbane Marriott which commenced during the first quarter of FY2019, and the continuous weakening of the Australian dollar against the Malaysian ringgit.

3. Revenue contributed by Malaysian properties grew 7.6% y-o-y to RM134.2 million while NPI grew 7.7% to RM127.1 million in FY2019. This was mainly contributed by The Majestic Hotel Kula Lumpur and a 5% step-up in rental income (every five years) from the lease agreement with JW Marriott Hotel Kuala Lumpur.

4. Revenue contributed by Japanese properties grew 54.5% y-o-y to RM25.2 million in FY2019, while NPI grew 64.6% to RM 20.8 million. This was mainly driven by the acquisition of The Green Leaf in September 2018.

5. On 14 August 2018, Starhill REIT Niseko GK, a wholly-owned subsidiary of YTL Hospitality REIT, entered into a conditional sales and purchase agreement with Niseko Village KK, an indirect wholly owned subsidiary of YTL Corp, for the acquisition of The Green Leaf for JPY6.0 billion (RM222.5 million). The parties also entered into a lease agreement in which Starhill leases the property to Niseko Village for 30 years with an option to renew for a further term of 30 years. CEO Dato’ Mark Yeoh, who had just returned from visiting the resort, said the resort was doing very well. Continued growth in international visitors will have a positive impact on the occupancy rate of the property as foreign tourists comprise about 70% and 50% of the property’s visitors during the winter and summer respectively.

6. According to The New Straits Times, YTL Corp intends to inject its UK hotels worth over RM1.0 billion into YTL Hospitality REIT next year. YTL Corp’s wholly-owned subsidiary, YTL Hotels & Properties Sdn Bhd, owns and operates five luxury hotels across the UK: The Academy in Bloomsbury; Threadneedles in London; Monkey Island Estate in the village of Bray, Berkshire on the River Thames; The Gainsborough Bath Spa in Bath; and The Glasshouse hotel in Edinburgh, Scotland. A unitholder raised concerns about Brexit and the weak property market in the UK, and questioned the objective of acquiring the properties. Yeoh explained that Brexit is actually positive for the hotel industry in the UK due to the weaker pound, making it cheaper to travel in the UK. He said all five hotels are performing well in terms of occupancy (over 95%) and revenue, with yields of over 6% per annum. He added that occupancy rates and rental yields are even higher than internal targets.

7. The CEO added that YTL Corp is a substantial unitholder of YTL Hospitality REIT, with companies related to the former owning a 64.9% stake in the latter. YTL Corp also owns a 70% stake in the REIT’s managing company, Pintar Projek Sdn Bhd. He assured unitholders that their interests are aligned with the manager and any property that the manager decides to inject into YTL Hospitality REIT will be accretive to unitholders. Chairman Tan Sri Dato’ Francis Yeoh added that YTL Corp’s majority stake in the REIT was a testament to its belief that the REIT is undervalued by the market. The market price of one unit (RM1.36 as of 28 November 2019) is still 15% lower than the net asset value per unit of RM1.606 as at 30 June 2019.

8. The unitholder was also concerned about the foreign exchange risk incurred by acquiring properties outside of Malaysia. The CEO explained that the risk is mostly hedged by obtaining a loan in the currency of the country that the property is located in.

9. A unitholder asked about the performance of the properties in Japan. The CEO said that Niseko Village is performing well, with the property under a master lease arrangement thus generating a fixed rent for the REIT with a step-up in rental income every five years. He added that Niseko Village K.K., the operating company, is also performing well and it is opening a new hotel, Hinode Hills, on 1 December 2019. He revealed that although there is high demand for Niseko, they are facing labour constraints due to Japan’s shrinking and aging population. In its latest annual meeting with the governor of Hokkaido, the management had suggested that they waive the visas for Southeast Asians to mitigate the labour issue. So far, officials have allowed the waiver of visas for approximately 350,000 foreign workers, of which YTL Hospitality REIT currently employs a number of them.

10. Another unitholder wanted to know more about YTL Hotels’ move to expand AC Hotels, a mid-ranged European brand by Marriott. The plan is to convert its three Vistana Hotels in Kuala Lumpur, Penang, and Kuantan to AC Hotels by December this year. A substantial amount has already been invested for the refurbishments of the hotels. The CEO said the group is looking to either construct new hotel buildings or convert its existing established properties to AC Hotels in every state of the country, as the hotel is popular among millennials due to its modern and sleek design, notably in Europe and the U.S. Yeoh added that YTL has a close relationship with Marriott Group, as evidenced by YTL Hotels operating 12 Marriott International hotels across Asia and Europe such as The Ritz-Carlton, JW Marriott, and Autograph Collection.

Liked our analysis of this AGM? Click here to view a complete list of AGMs we’ve attended »

Young Jia Yi

Jia Yi has been an investor since the age of 18, following the investing philosophies of Buffett and Munger. He currently works as an industry analyst in an independent investment research firm. He is passionate about understanding how things are interconnected in the world and enjoys reading in his free time.

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